Vonage Losing Customers: Who and What's to Blame?

Last Updated Aug 20, 2007 5:36 PM EDT

Although Internet phone service provider Vonage added 57,000 customers this quarter, Comcast, which bundles VoIP with other broadband services, added more than ten times more subscribers -- taking over as the industry leader. While Vonage founder and CEO Jeffrey Citron attributes the stalling customer growth to decreased advertising efforts, there are a few other factors contributing to the once-lauded company's current business difficulties:Vonage's service has some significant shortcomings. The company has yet to establish an acceptable interface with community 911 emergency service systems. Although early horror stories of deaths and loss of property aren't as common now that Vonage offers 911 service to 95 percent of its customers, traditional telecom companies have made it difficult for VoIP firms such as Vonage to access their call centers. Couple that with complaints about dropped calls, poor voice quality, and frustrating customer service reps, and it's no wonder that seven out of 10 customers who leave do so because of the service.
Vonage's ill-fated IPO created ill will with its best customers. When Vonage went public in May 2006, it reserved 13.5 percent of the IPO shares for customers to help cement their relationship to the company. The strategy backfired when the stock plummeted, losing 30 percent of its value in the first seven days. Already unhappy with their devalued stock, customers were further confused by conflicting reports: first, that Vonage would allow customers to choose not to purchase their reserved IPO shares and then that the customers were legally obligated to pay for them.

Public legal woes follow CEO Jeffrey Citron. Prior to starting Vonage, Citron paid $22.5 million to the SEC to settle illegal trading charges against him, charges that he denies. This year, Vonage was found guilty of infringing on 7 of Verizon's VoIP patents. Vonage is planning an appeal, but in the meantime the case has caused some customers to be skeptical of the company and whether it will be around in the long-term.